Option Assignment at Expiration

[optiontraders]

If I am short one call option and short one put option at expiration (and both options expire in the money), will the put option be assigned to me first so that the long shares received from the short put can be "called in" and given to the holder of the call option?

For example: If the price at expiration is $8 and I am short a call option at $5 and short a put option at $15, then both of these options will expire in the money. Will the $15 Put option be assigned to me before the call option is assigned to me so that the shares received from the put option can be used to give to the buyer of the call?

Thanks

 

[tripleogstar]

No.Expiry is at one moment in time, everything that needs to be exercised gets exercised and everything that needs to be assigned will be assigned. Just out of interest, why on earth does it make any difference if they do one before the other?

 

[optiontraders]

Because If I were to have a short gut spread (like the one used in the example), I do not want to end up with any positions remaining after expiration. Usually I would be flat shares because I would be short shares after assignment of the call and long shares after the assignment of the put. However, if the stock is hard to borrow or non-borrowable and the firm cannot locate shares for me to short, then I would assume I would end up with long shares on Monday because I would be forced to "buy in" due to selling the call. This would force me to buy shares for my short call position (which would be given to the holder) and also accept long shares from the put option. This would leave me with long shares on Monday.

If I had sold the spread in the example from my first post, and the stock is non-borrowable, after expiration, would I have any positions in my account due to the assignment of the options? Or would the two options be "netted" against each other and I would simply lose $10/per share ($3 from the call and $7 from the put)?

Thanks

 

[tripleogstar]

well there is a simple solution, hedge your delta exposure before expiry and you will be flat shares after expiry. Secondly, in practice it doesnt work like how you described:

will the put option be assigned to me first so that the long shares received from the short put can be "called in" and given to the holder of the call option?


The exerise and assignment procedure is a random allocation. The exchange will not be looking at your other positions to decide on what to exercise and what to assign you on.

Why on earth are you talk about borrowing shares? If you are short a ITM call and ITM put, you will get assigned on the call (so you will get short x shares @ 5) and you will be assigned on the put (which will get you long x shares @ 15). So yes you will lose $10 per share you are assigned on. And OBVIOUSLY you will have no shares outstanding after expiration because they would have netted out (assuming you have sold the same amount of options on the call and put)

 

[optiontraders]

Thank you for clarifying this for me.

 

[Martinghoul]

All these things only matter if you expire close to the strike(s)...